Economics: Lesson 1- The Story of Village Palampur

OBJECTIVE: To introduce some basic concepts relating to production through a

story of a hypothetical village called Palampur.

 Palampur is an imaginary modern village with modern farming, fairly

connected with neighbouring villages and towns with a well-
developed system of roads, transport, electricity, irrigation, schools
and health centres.
 Farming is the main activity of the people and non-farming activities
(25% people are engaged in) include dairy, small-scale
manufacturing, shop-keeping and transport.

Organisation of Production:
The main aim of production is to produce goods and services, which
require four essential things.

Enterprise – Skill + knowledge

1. Land – and other natural resources like water, forests and minerals
2. Labour – skilled labour to perform necessary tasks and unskilled labour for
manual work
3. Physical Capital –a. Working capital – can be used in production for many
years , eg. Tools, machines and buildings
b. Fixed capital – Raw materials and money in hand

4. Human capital – includes competent and trained people who put together
land, capital and other factors of production to produce goods

Different types of production activities is divided into two groups – one is farming
- is the main production activity and the other production activities, referred to as
nonfarm activities include small manufacturing, transport, shop-keeping.

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Assignment 1

1. There are four requirements for the production of goods and services. What
are they?
2. What are the items that come under physical capital?
3. Write any one difference between Fixed and Working Capital? Explain.

4. Give few examples of fixed capital.